The economic footprint of BPO industry

The Business Process Outsourcing Industry has come a long way since I first espoused the merits of this global business phenomenon in 2001, helping position the country, in collaboration with the early movers of BPO, by setting up Outsource Philippines and doing road shows all over the US and the UK. It was a big bet for investors to come to the Philippines back in those days.

How things have changed. Just over a decade later, we’ve seen the exponential growth of this sector, making it one of the chief economic drivers in this country, currently employing 770,000 people with total revenue expected to reach $6 billion. Today, the Philippines is the world’s leading call center destination, beating out India, while Manila was just named the world’s 3rd top BPO destination, according to a Tholons 2013 Survey1. 

After growing 20 percent in 2012, the BPO industry of the Philippines is estimated to hit revenues up to $25 billion by 2016. By these estimates, according to the Information Technology and Business Processing Association of the Philippines (IBPAP), the Philippine’s BPO industry will account for approximately 10 percent of the nation’s GDP directly employing 1.3 million Filipinos and 3.2 million more in indirect employment. In fact, the BPO industry is the second largest source of foreign exchange in the Philippines, just after remittances, which currently contribute 10 percent to the country’s GDP. 2

Just like the tourism sector, the multiplier effect that goes hand in hand with the BPO industry should be closely looked at in view of the various ancillary industries that accompany this sector, which as a whole, contribute to exponential growth to the total Philippine economy.

What’s the multiplier effect? The BPO industry contributes to real consumption, which is what pump primes an economy, from transportation services and hospitality services to food, communications and entertainment.

More importantly, the taxes the country collects from the BPO industry is significant. According to The Everest Group, this translates to $33-billion revenue through 2016, translating to four percent percentage points in market share, giving the Philippines a solid 10-percent global market share in the BPO space. This means an incremental three billion in taxes on wages – $1.2-billion tax on wages from direct employment and $1.8-billion taxes on wages on indirect employment.

I was blown away by the numbers that I was driven to see for myself this phenomenon. I visited two BPO operations: the first was a CAPTIVE type, meaning they provided services exclusively for their own multinational operations. The other was called GLOBAL since they marketed their services to others in the competitive global outsource market. Because this is a highly competitive industry, I decided not to identify them.

CAPTIVE - This BPO operation has a headcount of less than 5,000 and has been in operation for more than a decade.  Lately they have been expanding at 500 per year.  The typical  profile of their employees are college graduates with both verbal and written English capability, computer skills, energetic and focused on building a career within the company.  This company offers staff the opportunity to either build a global career locally or abroad in 70 different locations.  Information indicates that 50 employees are now permanently stationed abroad (US, Singapore and the Middle East).

1 http://www.rappler.com/business/20810-manila-world-s-3rd-top-bpo-destination-survey

2 http://investvine.com/philippine-bpo-industry-to-hit-25b/

Their human resource development policies are highly advanced and not typically provided in other industries. . Employees are provided a career plan and a career coach is assigned to them.  Training is offered to all either in-house or outsourced classroom style. They are provided on-line training (with over 1000 courses available) which can be accessed during office hours. The company was rolling out a significantly improved benefits package (covering health insurance, pay etc), based on market surveys as well as employee feedback. Compensation is reviewed for market competitiveness annually and employees are provided with full transparency on their compensation relative to their peers and the market data.

This company prides itself in sustained compliance with national and LGU regulations. It goes out of its way to educate everyone on their rights as well as grievance procedures.  Each location is equipped with Emergency Response and Disaster Recovery teams, social and activities space, pantries, nurses, sleeping room and the like to ensure a safe and enjoyable workplace. Safety briefing and drills take place on a regular basis to ensure readiness for the worst eventuality.  In terms of Corporate and Social Responsibility, they support Habitat for Humanity and staff are encouraged to participate in charitable activities.

It is significant to note that their annual attrition rate was between 10-20 percent which is low compared to the average BPO which I understand can be as high as 80 percent. 

GLOBAL – This organization has a headcount of more than 10,000.  A college degree was originally a requirement but they have lowered it to at least two years in college for some positions.They welcome OFWs and retirees /senior citizens.  They pride themselves in providing career opportunities within the company indicating a career track from agent to team leader, to operations manager to senior manager for operations and to director for operations. They invest millions of US dollars in training and development.  Training is done in their multiple work sites located in various parts of the Philippines. All employees undergo training on their Integrity, Code of Business Conduct and Corporate Security.  Other courses are for agents on culture and communications as well as program specific training. Supervisor levels and up are given management development programs.  

There are numerous employee engagement programs ranging from first aid and fire safety seminars, to free spa sessions and urban self–defense. In terms of health and safety and legislative compliance, their practice is exemplary: regular fire drills, lactation rooms for mothers per site, shuttle service during typhoons and other calamities, sleeping quarters for males and females per site, on site-clinic with nurses on duty from 8-24 hours per day, and on site physicians per week with specializations based on the recurring illnesses per site.

Their other benefits: full HMO coverage, medicine reimbursement, life insurance, rice, transportation, meal and communication allowances, annual merit increases and performance bonuses.

Senate Bill 57

I understand there is a pending bill in the Senate to provide protection of workers in the call center industry.  I am not convinced that this will do more good than harm to an industry that already provide benefits to their employees beyond what the law mandates and quite frankly, better than most local companies. As the law stands today, the right to organize and join labor organizations is already in effect and enforced by the Department of Labor and Employment (DOLE).

One of the executives whom I met commented: “With existing regulations in place and the highly competitive nature of the BPO industry, unionization is not required to ensure that there is fair treatment for employees in the industry.  With multi-national companies providing our Filipino employees with lucrative salaries, benefits and well-being, making significant investments in their post-university training (often exceeding US$5,000 per employee), paying diligently on their taxes, and then only to be tackling as high as 80 percent attrition and continual wage inflation demands of these employees; perhaps the Senate should rethink their desire for increased protection. Employees have many, many choices and the companies that treat their staff well will prevail while continuing to build a significant industry for the Philippines”.

Economic Impact

Let me revisit my earlier discussion on the significant economic footprint of the BPO industry to the country, reinforcing what this BPO executive has just mentioned. According to a presentation by Dr. Alvin Culaba on the 2nd FGD on BPO Innovation and Competitiveness3, he cited the NSO computing a larger multiplier effect through consumption via direct employment in the BPO industry by 2016. The BPO industry’s contribution to this country’s economy cannot be compromised, as the figures below are quite staggering:

- Php 232.7 billion in VAT contribution for food purchases

- Php 73.7 billion in housing rental

- Php 45.4 billion in public transportation and mobile communications costs

- Php 22.5 billion in clothing costs

- Php 80 billion in savings/investments

- Php110 billion in taxes that could go to cover public services equivalent to 300,000 classrooms and 3.2 million families receiving maximum Conditional Cash Transfer (CCT) for a year.

I respectfully suggest that the Senate send a committee to pay a visit to BPO sites as I described before they deliberate further on this proposed legislation. We have to be careful that our concerns are well-founded or else we may end up choking the goose that continues to lay golden eggs. With global BPO business estimated to more than double from 2010 to 2016, we cannot afford to be cavalier about this issue. There are many competitors lurking out there ready to take away the business from the Philippines now poised to be the world’s number one provider; as has been seen over the last 5 years with India moving downwards in the world’s ranking.